Welcome to Nasdaq trade talks,
where we meet with the top thought leaders and
strategists and emerging technologies,
digital assets and regulatory
landscape and capital markets.
I'm your host, Jill Malandrino,
and joining me on the desk at the Nasdaq market site.
We have Chris Dearborn, managing director on
the Nasdaq Market intelligence desk, Michael Normile,
US economist at Nasdaq, and Chris Engelbert,
founding partner and CIO of Engelbert Financial Advisors.
We're here to discuss key themes to watch in
2026 and why the market environment
could be a return to normal.
It's great to have all of you with us.
Welcome back to Trade Talks.
And Chris return to normal.
Certainly subjective feeling isn't it?
Yeah, it is Jill.
But you know now we're going to be in
2026 six years out from Covid.
Covid again sets the standard.
When people historians take a look back,
they're going to be saying, well, wait a minute,
what was happening economically then?
And how are we getting back to normal?
And we think the two biggest areas are the yield curve.
We're going to get lower short term rates.
Obviously the fed signaled that.
But we're trying to tell people you got to watch on
the long end because inflation is not dead.
The second big theme is the fact that,
you know, it's not going to be all about the Mag seven.
We're seeing that in the last couple of weeks.
It's going to be the other 493 stocks.
And so when I say return to normal,
return to normalized markets.
But there's one caveat we have for 2026 is
that we believe there's going to be
higher volatility out there.
And the reason being is you know fed policy mistakes.
And we are getting a new fed governor.
Valuations are still extremely
high in certain sectors of the market.
And you know also we have midterm elections.
And so we had 120% drawdown in 2025.
Everybody was you know for that month was
like you know oh man we're having a tariff tantrum.
You know what do we do.
Well now you know the markets recovered,
they went on to new highs.
But we're facing challenges in 26.
It's not going to be after
three consecutive up years in the market.
You know again you know nobody likes to hear that.
Investing is kind of like gambling.
But you know we've got a lot of
blackjack 21 going on here.
And we are concerned going into 26.
Speaking of 21 right.
What's Nasdaq 100 up about roughly 21% ish since
the February or whatever the the April. I'm sorry.
Yeah. Um, you know,
getting double digits starting with a two, you know,
for a number of years in a row
is very unusual. It's unusual.
And look, as a long term investor, I'll take that,
especially having acquired shares in
my 401 K at less expensive levels.
So I guess you could include that as part of the cycle.
Um, you know, Michael, Michael,
turning to the macro for a minute here,
it seems to be the focus is really on jobs
and what those numbers are translating to.
Yeah, we got a big double update this morning,
with the October and November numbers
coming out all at once because of
the government shutdown earlier this year,
delaying those numbers.
And it was pretty much as expected.
The headline looks a lot worse than it is.
So for October it shows just over 100,000 jobs lost.
That's because 160,000 federal jobs were lost.
But again, that was something that we
knew going into it for the most part.
And that's because that goes back to
those buyouts that were initiated
back in the end of January,
where they paid workers through September.
So those people that accepted those buyouts,
they fell off the payrolls in October.
And so that's why we saw that
160,000 drop in those federal workers.
And so the private number is
actually positive about 60,000.
And then for a similar similar range
for November as well.
So it's not too bad.
And if you look at the last three months it's about
75,000 private payrolls added per month.
So it's not blowout numbers,
especially if you take into account
what Fed Chair Powell was saying last week where they
think that the jobs numbers are overstated
by about 60,000 in their initial prints.
And that goes back to
the annual revisions that we have based
on kind of wonky birth death models
that they have for businesses,
leading to kind of a persistent overstatement.
So it means that we're still seeing job gains,
but not huge job gains.
The positive story, though,
is that if you're looking at
the surveys that small businesses do,
that the regional feds do,
those show some improving trends in hiring plans,
as the hope for 2026 is.
We're getting these tax cuts,
we're getting a lower fed rates,
there's reduced uncertainty and all that
combining to a little bit
of improvement in hiring as well.
Yeah. You know Chris, it's interesting
when we talk about returning to normal
and we're six years out from
Covid right. There was no roadmap.
It doesn't seem like. Right. But there was no roadmap.
But guess what?
We also went through the financial crisis.
There was really no roadmap for that either.
And yet the markets continue to do what
the markets continue to do over the long term.
It's definitely a risk on environment
for the last three quarters, right.
Especially since the tariff tantrum,
you've kind of worked through a lot of
different items, um, economic uncertainty,
inflation being a little bit more persistent
towards 3% than 2%, um,
uncertainty out of fed policy,
uncertainty out of policy,
out of the white House and then global
macro across the board.
But when you look at it it's definitely risk on.
You've had 3637 new higher highs in the S&P 500.
You're seeing the rotation of
smaller caps especially in the back of three cuts.
The Russell has been on fire.
It's making highs again the
100 the composite the Dow Jones Industrial
18. New highs this year.
So you're seeing it across
all sectors across all market caps.
That means it's risk on.
I read the you guys probably saw today
the Baml report this morning for
December global fund managers.
And it's showing the most bullish reading since 2021.
And cashes at the lowest 3.3% since that time frame.
That's generally a sell signal for most folks.
So what you're seeing is that
the retail investor, institutional investors,
everyone across the board is,
in fact in the marketplace where we are right now.
And that macro theme is kind of interesting,
where you're seeing the data finally getting
caught up after the shutdown.
But more importantly, the main theme is still AI.
But now you're seeing a broadening to
the other sectors and starting to catch up.
So the question with the AI theme now is ROI,
which we're talking about before,
and then a lot of the bills.
So the infrastructure play there
is a little bit in question right now,
especially on the ROI for that as well.
Of course. I mean, these companies have to be able to
justify their investments and figure out what,
you know, the thousand use cases,
which two are going to show the most value.
But on the good part about the AI part,
and this is everything.
Everybody already knows that the companies at
the forefront are using their own cash.
They're using profits.
They're not borrowing. For the most part,
it is a little mixed together, shall we say.
Um, circular.
Circular is a great word that everyone likes to use.
I was trying to fix something else, but okay.
Chris, here's an interesting question in terms of
how Rias are using AI,
is it a story of the haves and the have nots?
Are you seeing value to
those who are using it, or vice versa.
Well, I feel like we're on
the precipice where I always tell people,
when you're a registered investment advisor,
there are two parts to your practice.
There's the part of getting your, you know,
getting prospects, converting them to clients,
bringing the assets in.
And then there's the the section where
you have to actually manage the money.
And I feel like we're
kind of we're looking over the edge like,
hey, what can we use to get new clients in?
I mean, there's a lot of products
out there database s****ing,
email, etc., to kind of identify your perfect client.
So those are there.
But the question is, is how do you use that?
And in some cases,
I mean, I'm not a politician,
but if I was running for office,
I think in the next couple of years,
just like we have to be very careful
with our medical information,
your data that's out there is now
being s****ed and sold to God knows who.
And at some point, people are going to go, hey, no mas.
One of the most fun things
I've been doing in the last couple of days,
and this is my New Year's resolution,
is to unsubscribe from all of
those emails and texts that
you're getting that I never signed up for it.
They just come back. They're like cockroaches.
Yeah, they come back. So, you know, my point is,
is that AI is close on acquiring clients.
I don't think we're there yet.
But then also on on managing portfolios,
I've, you know, looked at a lot of
software packages, interviewed them.
It's also close, but it's not quite there yet.
You still I don't care
where we go with artificial intelligence.
You still need human intelligence eyeballing it going.
Does that make sense or does not.
Does it make not make sense to
in this particular situation, especially for individuals?
I mean, you know, we have a good sized practice.
You know, we focus on law enforcement,
but everybody's the same.
But yet everybody's situation is different.
And so you can't like say with AI, hey,
everybody's going to should be doing maxing out
their 457 or 401 K or doing this.
You still have to look at
each person on an individual level,
which we're not there yet with.
I would say a third component too.
Regardless of where we are with AI as a fiduciary.
There are things that you need to comply with,
whether there's regulation in place for that or not.
The guardrails are there you need to comply with,
and if AI makes a mistake, it's still on you.
Absolutely. And I don't really think people
have thought through the process of the guardrails.
And like I said,
I think we're going to have
a big privacy data situation
coming in the next couple of years
because people are going to be like,
my data is all over the place,
and AI is, you know,
all of a sudden one you probably were
within months of you getting
a phone call sounding like it's somebody going,
hey, Jill, you know,
I saw that you were looking at XYZ on Amazon.
We have a special today on that.
I think that's where you could end up crossing the line.
Well, I mean, which is so interesting, Chris,
because I have an Apple Watch on a number of us,
you know, have fitness trackers.
Was your first thing about your Fi,
your personal health information when you're inputting
your stats and the goals that you want to achieve.
That's that's a direct HIPAA violation,
but not on the consumer side of things.
There is nothing to regulate that.
And it's it brings
up a caveat because they're going to expand,
just like all the other expansions you've seen over
time into data security issues.
They're going to push as far as they can until
somebody pushes back and we're not there yet.
And because they don't know
what they have and what they don't have,
and that's the whole point.
Just going back to the market itself,
you know, what's the ROI on the investment?
We don't know what that's going to be,
but we know there's going to be something
at the end of this yellow brick road.
Hopefully it's something that's
going to pay everybody back.
And if that's something that we have to push,
it's definitely something that they're going to do.
Yeah. It just makes me scared.
Yeah. Same as you Chris.
Well, Michael, let's talk
about inflation for a moment here,
because what I'm hearing anecdotally seems to be
very divorced from the data that
we're seeing and what's happening in the market.
Right. All we hear about is
unaffordability and insurance electricity prices at the,
you know, food store are so much higher.
It seems very divorced from this.
You know, this good feeling that we're having here.
Yeah. I mean, the data is saying, right.
Inflation is close to 3%.
But the reality is if you're looking that's talking
about just the last 12 month period,
but we're six six years out from Covid, right.
And in that Covid period it's more like
2,530% that prices have gone up.
So even though they're not going up as fast,
they've just gone up so much in that last six years.
And prior to that six year period,
we had a few decades of really low and steady inflation,
and so people just weren't used to it.
And even though we've had, you know,
people are surprised to hear that
wage growth kept up with inflation,
but it didn't really surpass
inflation that much that people are feeling.
They feel like they're kind of running in place.
Right. It's been six years where
you're not really any better off than you were.
If you're looking at aggregate wage data
and aggregate inflation data.
And so I think that's really where the the disconnect is,
where inflation is generally heading in
a positive direction lower if you especially
if you strip out goods inflation if
you're focusing on services and I think
the forward looking data for
goods inflation as well is relatively positive.
If you're looking at PMIs,
the prices data that they have in
there suggests that that peak
in goods inflation is only a few months away.
So we'll start seeing
goods and services inflation both slowing down.
But that doesn't change the fact that
the aggregate increase in
prices that we've seen over the last several years
is so much,
you know, out of the norm
from what people were dealing with.
I want to make a point to that.
One of the things that we are hyper focused on in 2026
with the inflation is that if I was the fed chairman,
I would be watching crude oil futures like a hawk.
They've been breaking down recently.
Uh, if crude oil continues its descent,
um, that's going to be really good for inflation.
For inflation.
The question is does it tip over to
deflation where prices keep cascading lower?
Now, you know, having said that, you know,
if we get gasoline and gasoline right now in some parts
of the country is 179 a gallon,
which is very low.
You know, oil is an input
to everything manufactured, etc.
if you can take away a big chunk of inflation with that,
having rents come down, keep labor steady.
Maybe we're in that nirvana.
I don't know if we are.
But again, I you know,
the fed policy mistake.
You know, a new fed governor in 26.
And what's he going to do.
And if he's saying, well,
we're going to keep on bringing, you know,
short term rates down,
we don't care about inflation.
That works as long as the price of oil goes down.
But if it doesn't and if there's
some other drivers out there,
you know, then we're back in that
inflation boogeyman for 26.
Yeah I mean the fed funds.
Futures are pricing in three quarter point cuts
for next year already anyway regardless.
So if that does happen and there is
a policy mistake that could be
a major problem for the markets as a whole.
But when will the AI spend be enough to
pull everyone forward right there.
So it's a big item to watch.
Well, I mean, your key sectors
on the desk are retail and consumer.
So we've heard about what the data is saying.
You know, we've heard about what we think
the market's going to do.
What are our issuers telling you.
So a lot of it's been very interesting.
There's still on going back to inflation,
the still significant uncertainty
around tariffs and how
that's going to impact the consumer.
You still have the K shape on the consumer spend right.
The wealth effect is definitely there for
higher earners with
the portfolios and the home ownership.
And the lower income earners are
definitely suffering a bit here doing without.
Um, there's been a downturn for some items,
which is kind of interesting.
Some of the store brands
are not seeing the action that they thought.
The prices have been a little bit higher than thought.
So people are doing without on that end.
You are seeing dollar stores do better.
You're seeing off brand like Ross Stores
and TJ Maxx doing much better.
Always do.
Better. They do well because their Dollar Tree,
Dollar General and the dollar stores are
sourcing a lot of it outside the US.
And they finally figured out the supply chain.
And they're seeing better margins because they're
monitoring their inventory and they're doing much better.
When you're looking at the discounters
to buying supply that's already in the US.
So they're not affected by tariffs.
So they continue to do well.
And people like to go for
the treasure hunt when they walk into those stores.
So that's still there especially at this time of
the year what you're seeing in staples.
So Walmart's now Nasdaq
listed and it's trading at all time highs.
Thank you.
The team worked hard on that I was not part of that team.
Um but they're seeing brand come across.
So they're seeing omnichannel
digital to the main items that have been working well.
Plus they're seeing a trade down effect from
the higher income earners shopping at that store,
making the dollar go a little bit
longer for the brands that they want to get,
and not necessarily on staples but also on discretionary.
So you're seeing a lot of
good import there. It depends though.
There's going to be lots of winners and losers,
as you can see with a number of
other companies as well who have been
big name brands are being hurt
because there is no trade down in
their portfolio for the products that they have.
Yeah, yeah. Well, Chris, it's interesting.
I mean, retail is always going to be idiosyncratic.
Right. And then, you know,
the long term strategy over the past decade that Walmart
instituted was was brilliant, right?
I mean, they're they're
they're worth the price that they're.
At.
Amazon Walmart category killers.
I mean, you see you go to the mall nowadays and you know,
you see all the different stores that
are empty and they're repurposing
malls into other things
that you can do where you have a lot of parking,
etc.. Um, and so people are becoming even more savvy now.
I talked a little bit about
how AI has some negative aspects. To me.
One of the biggest aspects,
positive aspects is ChatGPT for comparing prices.
And, you know, going on the internet and say,
show me the ten best prices
for cars in our particular area.
I think, you know, the search engine companies,
whether it's Google and Microsoft,
going to be able to retool so that consumers can
really hyper focus on
what the really good deals are out there.
You know, it's interesting that you're talking
about repurposing traditional malls.
I mean, Walmart, are anchoring some of them now,
or you're seeing more lifestyle like gyms or
big box stores starting to anchor them
versus traditional department stores.
Yeah, and that trend continues.
I mean, the consumer, you know,
when the day is done, the consumer
is always extremely savvy.
They know where they're going to spend their dollars and
they drive the US economy.
And so again, one of
our other themes and obviously we have to wrap up here,
but we've been pounding
the table on small mid-cap stocks.
And we think 26 is finally
the year we saw it at the end of the year.
But again, onshoring manufacturing,
lower short term interest rates.
You know, things like AI go right to
the bottom line for small mid-cap companies.
And, you know, we think that theme
finally plays out in 26.
All right. And we will wrap it there.
Thanks for joining us on trade talks.
And thanks for joining me from market site.
I'm Jill Malandrino global markets reporter at Nasdaq.